It seems that things are increasingly getting out of control vis-à-vis the economy and politics, even as the state appears clueless, politicians look inept and the public seems resigned. While the gloom and doom is becoming entrenched, there is still a narrow path that is available to get a grip and beat back the multiple crises on hand. For that, several things must go the right way, both internally and externally.
On the external front, restoration of Pakistan’s EFF loan arrangement is contingent on, among other things, a broader agreement between the US and China on how to provide debt-restructuring or debt-relief support to countries that are heavily-indebted and trapped. With the IMF’s platform finally starting to provide BOP support to countries that were in the queue for several months (e.g. Sri Lanka and Ukraine), it has raised the likelihood that Pakistan’s SLA and eventual IMF Executive Board approval is also around the corner.
What also requires significant effort from local authorities is the ‘outreach’ to friendly countries to close the $5 billion external financing gap. While China has provided much-needed support through $1.3 billion rollover of ICBC loans lately (more support is in the offing), the assistance from Saudi Arabia needs to be revived (for which institutional support can come in handy). A big-ticket privatization deal (mostly likely the LNG plant sale) can realistically be secured with the help of a Gulf country. In coming months, shipments of price-capped Russian oil (with option to pay in third currencies) could also help preserve the reserves.
Internally, there are legal question marks on whether nationwide elections (for both federal and provincial legislatures) can be held at the same time later this year in October (as determined by the Election Commission of Pakistan). If the polls across the country are indeed held later this year (after some form of compromise/agreement among government, opposition and institutions), the next 4-5 months can provide some political stability that can be put to good use towards macroeconomic stabilization post-EFF revival.
For nearly a year since it was formed, the Shehbaz Sharif government has been regularly forced to engage in political firefighting that has only taken away the time and energy to focus on issues such as i) designing targeted fiscal interventions to assist the lower-income population with cost-of-living support and ii) implementing market-based mechanisms to boost produce supply and keep the runaway food CPI in check. There have been several own goals too – but the ever-growing political chaos has not helped.
Institutional clarity is required on doing what needs to be done to avert the short-term debt-sustainability crisis and restore the country’s long-term growth prospects. If there is a broader consensus on electoral timeline, the sitting government can buy some time and focus on urgent economic matters to alleviate some of the pressures that the economy has been facing. If the opposition (PTI) does not wish to inherit a completely-broke economy, it must extend some support to the PML-N-led government. The latter clearly has no pathway to an electoral victory, but the economy still has a narrowingroad to recovery in sight.